Wednesday, September 5, 2007

Wednesday Morning

I hope everyone had a safe and enjoyable long weekend, for some of us extra long so I will jump right into it. Over the weekend we received news that the hedge fund Synapse was closing. The news that another hedge fund imploded is significant as my concerns are the counter-party risk they have taken on. What do you think will happen when another institution who bought that arcane, illiquid credit default swap, for example with Synapse on the other end and now no Synapse. I am not an expert on the machinations of back office brokering but I know enough to know that developments such as this do not bode well for the system. By the way if you read through the Bloomberg article regarding the failure of Synapse you find out they had NO subprime paper, hence I continue to feel very comfortable being short in this low volume, short fueled, bear market rally.

I read something where a blogger/analyst called this market an issue of insolvency rather than illiquidity and that rate cuts are not going to help. I continue to encourage all of you to watch the debt and credit markets as this is where the brains of the market reside, not the equity market. Hence you know why I labor the commodity and equity market, plain ol' not smart enough. What I do know is that these 'smart players' see big trouble as evidenced by spreads. The equity market will eventually wake up to it but it may be too late. This is a big domino game and once a domino falls others eventually are affected to believe otherwise is naivete of the highest order. This is where our advantage comes in, the debt and credit markets are 'the tell' and we now know this stock market is bluffing, the question becomes are you prepared to call the bluff.

Countrywide continues to deteriorate since the BoA announcement. The CFC shareholders had a gift to get out on that news, which I hope they did. For those that like to trade news or even fresher news as some like, you get whats coming. Remember, news conforms to the tape. Insiders and management are cheerleaders for the stock, always over hyping the positive and downplaying the negative. Mr. Mozilo can be candid now as he has sold some 400+ million of stock. the last few years. Do you really think he would let you in on the negatives so you could cut in front of him to sell? If you do believe that and that management and insiders are on your side, always telling it as it is may I suggest the race track for you speculations as you will have more fun there.

I re-read Reminiscences of a Stock Operator over the weekend, for what is now somewhere in the mid twenties as to the number of times I have read it. What a refreshing, simple wonderful read on speculation. It is a valuable read, whether you are in a trading slump, staring into the abyss or riding high on all cylinders. I cannot recommend it highly enough to speculators out there, it is MUST reading for anyone considering or already in the markets. I will post some charts of interest a little later this morning. Good trading to you all.

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